Mortgage Pre-approval

When you are ready to purchase a home, the first thing you need to determine is whether you are actually qualified for a mortgage loan. A pre-approval is a free service which will give you a broad idea of how much you will exactly have to pay for your home and if you are financially ready for it. Lenders will appraise your current financial standing as well as the expenses that you will incur for the purchase of the home.

Factors to determine your mortgage pre-approval:

  • Credit Score- Credit score ranges from 300-900 With most Canadians falling under the 680-900 bracket score. This means that you had paid your monthly bills on time. If your credit score is above 680, you pass this qualification for a mortgage loan. If you fall between 600-680, then you will also qualify for a B-level loan but with higher rates. However, if you fall below 600,  you can still be qualified but with higher rates and additional requirements, depending on the details of your loan proposal.

  • Down payment- One common indicator of your readiness for home ownership is providing funds for downpayment. If you are only able to provide 5% down payment, then you will be then required to get CMHC insurance. But if you can afford to increase your equity and avoid paying for CMHC insurance, then it is best to increase your loan to 20% or above.  

  • Debt Servicing Ratios- You will need to personally understand how much you earn and and if you still can afford a mortgage loan. Lenders will ask you to submit information on your combined household income, and all the expenditures you pay monthly for the household. They will then compute if there would still be enough income left to service a mortgage loan considering that you have pre-existing obligations.

Home Buying Process

Once you find the home you want to purchase, then you will have to put an offer in a document called “order to purchase”.

Your Real Estate agent will then help you put the offer together, which includes the following:

  • Your name, the name of the vendor and the address of the property

  • The purchase price offered

  • The chattels that will be included in the purchase price (for example, window coverings, appliances, etc.).

  • Whatever items in or around the home that you think are included in the sale should be stated in your offer

  • The deposit amount

  • The closing day (the date you take possession of the home), which is usually 30 to 60 days from the date of agreement. As of the closing date, the purchaser is responsible for taxes, utilities, repairs and maintenance

  • Request for a current land survey of the property

  • Date when the offer becomes null and void — that is, when it expires

  • Financing Condition: a condition which allows the homebuyer to secure financing (i.e. mortgage approval) before the sale is final. If you cannot secure financing, then you can still walk away from the deal and recover your full deposit. Typically, you should ask for 7 days to secure financing

  • Home inspection: a condition which allows the homebuyer to have the house looked at by a professional inspector prior to making the sale final. If the inspection uncovers something you do not like, then you can still walk away from the deal and recover your full deposit

Mortgage Approval Process

A mortgage approval is similar to the pre-approval which lenders will appraise you as a borrower, but this time, specific details such as full address, exact home price, closing date and property taxes are added in as part of the requirements. Those details were not in the pre-approval, since the only focus was to compute for your financial standing. Once your lender has all details at hand, they will grant you mortgage approval as long as you are completely comfortable with the home you are purchasing and the conditions that apply along with it. Once your mortgage is approved, you can now waive your financial standing and close the sale.   

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